How Much Does Food Waste Really Impact Profitability?
December 21st, 2022 // Jason Gunn
The food service world is in the middle of a growing food waste crisis—you’ve seen the stats. Upwards 32 billion pounds of food are wasted in restaurant settings. Another 11 billion pounds of waste is created in institutional settings, like schools and hospitals.
It can be difficult to really feel the impact of food waste on our supply chains and the planet. A billion pounds is incomprehensible. The negative environmental consequences are nearly invisible in day-to-day life. But the pain isn’t only felt somewhere out there—it’s right in your P&L.
Let’s look at how food waste damages profitability, and what food brands and providers can do to counteract the corruption of their P&L by food waste. We’ll explore…
Research on how much money food waste really costs your business
Deeper looks at where the largest food waste is created in your operation
Practical waste mitigation steps food service leaders can take to drive profitability
The Impact of Food Waste on Your Business, In Dollars
There is no shortage of research on the monetary value of food waste in food service settings, especially for restaurants. This is just the tip of the iceberg:
Restaurants pay a stunning $162 billion in waste every year
Restaurants leave $620M on the table by not following food waste guidelines
Caterers can see as much as a 700% return on food waste mitigation investment
Between 4% and 10% of food purchased by restaurants becomes waste
How does all this wasted food affect your business’s bottom line? It’s time for some napkin math.
Let’s say you’re on the low end of food waste, losing only 5% of all food you purchase. If you’re a restaurant that spends $1 million per year on food, that 5% of lost food is $50,000 in wasted COGS, or $333 per day (assuming all ingredients are wasted at an equal rate for the purposes of this thought experiment). If you can reduce your food waste by just one of those percentage points, you’ll save $10,000 per year.
Now, if your food costs are average for restaurants (around 30% of revenue), that would put your total revenue around $3,000,000. And, if your annual profit numbers are average as well (around 5%), that’s in the ballpark of $150,000 annually. That reclaimed $10,000 may not sound like a lot on its own, but it’s a whopping 6.6% increase in profitability. Spread that across dozens of restaurant locations, university cafeterias, or office building cafes and we’re talking significant impact altogether.
This is a hidden cost. It doesn’t appear on your P&L as a separate line item but is baked into your overall food costs (which throws off your food costs and margin calculations). Many brands do little to identify the value of food waste because it’s often written off as a necessary cost of doing business in food service, so there’s little to no motivation to change the status quo. Hopefully, you can see that the status quo, however, leaves a lot of money on the table.
This is food service’s food waste problem in a nutshell: it’s costly, hidden, and largely ignored. But there are tangible steps you can take to mitigate food waste in your operation, and they don’t have to be complicated or time-consuming to be effective.
Also Read: Recipe Costing vs Menu Costing: What's The Difference?
The Four Leaky Buckets of Food Waste in Foodservice
If you want to cut your company’s food waste and be the hero that increases profitability by multiple percentage points, the first step is to acknowledge the different areas food waste is most often created.
Over-purchasing — Mis-counts during inventory, poor demand estimations, and simple errors in menu planning can all lead to procuring more ingredients than you need. This surplus easily becomes waste, simply because you can’t use it all before it spoils.
Spoilage — Food spoils, it’s an inevitability. However, poor transportation and storage practices can lead to more spoilage than can be reasonable.
Overproduction — Producing more food than you can sell is another symptom of inaccurate demand planning or kitchen miscommunication.
Plate waste — Once the food is in the customer’s hands, you can’t control whether they eat it all or not. However, with one study suggesting that the average diner leaves 17% of their food uneaten, culinary leads may consider reducing portion sizes to better align with customer appetites to minimize waste.
Also Read: Culinary OS: Explaining The New Push For A Universal Operating System
There’s No Silver Bullet to Reducing Waste
Minimizing waste with the goal of reclaiming the margin on each dish requires a multi-pronged approach that assesses your entire operation, from how you take inventory, anticipate demand, develop recipes and menus, manage food in storage, and train kitchen teams. It’s a lot, but the downstream effects add up and compound.
That’s why we built Galley, a Culinary Operating System that enables food companies to track, manage, and analyze every element of their food data. Inventory, purchasing, menu planning, recipe costing, production plans—with all of your food data in one centralized place, it’s easy to identify the leaky buckets in your operation and plug them.
Not to mention the efficiency gains from having all that data connected, always up-to-date, and accessible to wherever needs to access it.
Want to see how Galley can help reclaim margin by minimizing food waste? Reach out about a quick demo.
